Module leader – Shahrukh Irfan irfans3@lsbu.ac.uk NIC’s & Pensions NIP 1.John is self-employed and makes up his accounts annually to 5th April. His 2020/21 taxable trading income is £46,600. You are required to calculate the class 2 and class 4 NIC’s payable by Johnfor 2020/21 NIP 2. State the maximum annual contributions to registered pension schemes on which an individual could obtain tax relief in 2020/21 if the individual’s earnings for the year were: a. £1,400 b. £125,000. NIP 3. Rachel & Anna are sisters who completed their BAAF degree at LSBU 10 years ago. Rachel is now employed by a City of London bank as a senior manager. In 2020/21 her gross salary was £130,000 and she also received a bonus of £30,000. On 31 March 2020 she made a contribution of £45,000 (gross) into her personal pension scheme as she does not belong to a pension scheme at the bank. Rachel had only paid £20,000 into her pension in the previous year when she had earnings of £140,000. Anna is self-employed as a financial advisor. Her tax adjusted trading profit for 2020/21 was £36,000. On 31 March 2020 she made a contribution of £40,000 (gross) into a personal pension scheme. Rachel and Anna have no other sources of income. REQUIRED:
a. Calculate Rachel & Anna’s income tax liabilities for the tax year 2020/21.
b. Calculate the actual net of tax amounts that Rachel & Anna paid into their pension schemes.
NIP 4. Tim is a sole trader with a personal pension plan. His gross contributions to the personal pension plan have been as follows: 2016/17 26,000 2017/18 27,000 2018/19 31,000 2019/20 34,000 REQUIRED: What is Tim’s maximum pension contribution 2020/21?
NIP 5. Sarah had employment income of £250,000 in 2020/21. She has no other sources of income and she paid £80,000 gross into a personal pension scheme. She has no carried forward annual allowance. You are required to calculate Sarah’s income tax payable in 2020/21.
Module leader – Shahrukh Irfan irfans3@lsbu.ac.uk Trade Losses TL 1. Mary has been trading for many years but has suffered a trading loss of £60,000 for the year to 30th September 2020. a) If she does not make a claim in relation to her trading loss, how will it be relieved?
b) If she does make a claim how will the loss be relieved? TL 2.Ryan has been trading since August 2006. His accounting year end is 31 July. His recent trading results are as follows: Y/E 31 July 2017 Profit £18,000 Y/E 31 July 2018 Loss £43,200 Y/E 31 July 2019 Profit £13,000 Y/E 31 July 2020 Profit £16,000 Ryan has other income of £12,000 per annum. REQUIRED: Show Ryan’s net income after loss relief for all the tax years affected assuming; a) No claim is to be made against total income for trading loss( trade losses will be carried forward) b) Full claims are to be made to obtain relief against total income as early as possible. TL 3. Paul starts trading as a sole trader on 1.7.2018 Paul’s taxable trading results are as follows: Y/E 30.06.2019 Loss £96,000 Y/E 30.06.2020 Profit £130,000 He had held a job before he started his business and his income was as follows: 2015/16 Employment income £28,000 2016/17 Employment income £29,000
Module leader – Shahrukh Irfan irfans3@lsbu.ac.uk 2017/18 Employment income £30,000 2018/19 Employment income £13,000 Assume personal allowance of £11,000 for all years. Assume basic rate band of £32,000 for all years. REQUIRED Produce calculations to enable you to advise Paul on his best relief options.
Module leader – Shahrukh Irfan irfans3@lsbu.ac.uk Tax Planning TP 1Fergus was born on 19 July 1971. He is currently self-employed and if he continues to trade on a self-employed basis, his total income tax liability and National insurance contributions (NIC) for the tax year 2020-2021 will be £33,985. However, Fergus is considering incorporating his business on 6 April 2020. The forecast taxabletotal profits of the new limited company for the year ended 5 April 2021 are £100,000 (before taking account of any director’s remuneration). Fergus will pay himself gross director’s remuneration of £18,000 and dividends of £44,444. The balance of the profits will remain undrawn within the new company.
REQUIRED: Determine whether or not there will be an overall savings of tax and national insurance contributions (NIC) for the year ended 5 April 2021 if Fergus incorporates his business on 6 April 2020. Note: You are expected to calculate the income tax payable by Fergus, the class 1 NIC payable by Fergus and new limited company, and the corporation tax liability of the new limited company for the year ended 5 April 2021. TP 2Jane Jones has had two alternative offers of employment. In both cases employment will commence on 6 April 2020 and you should assume that she will drive 12,000 business miles during 2020/21. Aurora Plc.Jane will receive the following employment package: a) A salary of £33,000 per year. b) A new petrol-engine car, list price £18,400 and having a CO2 emissions factor of 188g/km. The company will pay for all running costs including petrol for private motoring. Jane will be required to pay Aurora Plc £50 per month as a condition of the car being available for her private use. However, she will not need to purchase a private motor car. Zodiac PlcUnder this employment, Jane will receive a salary of £35,000 per year. She will be required to purchase her own motor car and to use this for business purposes. The company will pay her 20 pence per mile for business mileage. The HMRC approved mileage allowance payment rates are 45 pence per mile for the first 10,000 miles and 25 pence per mile thereafter. Jane’s total annual cost of running her private motor car will be £8,100. REQUIRED a) Compute Jane’s income tax liability for 2020/21 if she: • Accepts the offer of employment from Aurora Plc. • Accepts the offer of employment from Zodiac Plc
Module leader – Shahrukh Irfan irfans3@lsbu.ac.uk b) Advise Jane as to which offer of employment she should accept. Your answer should be supported by a calculation of the amount of income, after payment of income tax that she will receive in 2020/21 under each offer of employment. Ignore the NIC implications. (Past ACCA question) TP 3Sophia Khan graduated from University and was offered two different jobs in Accounting. Both started from 6 April 2020 but she could only accept one of them. Astra Finance Limited Her salary is £32,000 for a full year. There is also the use of a company flat with an annual value of £10,000 which the company rents from the Council at £12,000 per annum. Furniture is provided in the flat which cost the company £5,000. The flat is not job related. Along with the flat comes a company car which she may use privately. It is petrol driven which cost £30,000 and had CO2 emissions of 162 g/km. There is free parking at work which would otherwise cost her £3,000 to park privately but she had to contribute £800 a year towards the car running costs and £600 a year towards private petrol costs, although the employer pays the balance of all private and business motoring costs. Stella Investments Limited Her salary is £35,000 but she is not provided with a company car. However she is required to use her own car for 10,000 miles of business mileage a year and is not given any mileage allowance towards it. There is no parking at work and she has to pay £3,000 a year to park privately near the workplace. She is provided with an interest free company loan of £8,000 in her first year of work however with which to buy a car and she does not have to repay it until she leaves the job but she has to pay the running costs herself of both private and business motoring costing £800. REQUIRED (a) Calculate Sophia’s income tax liability and NIC liability for 2020/21 is she accepted the job with Astra Finance Ltd and her liability to income tax and NIC for 2020/21 if she accepted the job with Stella Investments Ltd. (b) Advise Sophia which job was better from the tax point of view using calculations of take home pay.
Module leader – Shahrukh Irfan irfans3@lsbu.ac.uk TP 4Alex Courier is employed by Speedbird as a delivery driver and is paid a salary of £40,000. She contributes 8% of her salary into the company’s approved occupational pension-scheme. As an alternative to being employed, Speedbird have offered Alex the opportunity to work on a self-employed basis. The details of the proposed arrangement which will commence on 6 April 2020 are as follows: 1 Her income from Speedbird will be £45,000. 2 When not working for Speedbird, she can work for other clients and generate income of approximately £9,000. 3 Alex will lease a delivery van from Speedbird and this will be used exclusively for business purposes. The annual cost of leasing the van will be £8,000. 4 When she is unavailable Alex will have to pay the costs of a replacement driver which will cost £3,200. 5 Alex will need to contribute £4,000 into a personal pension plan during the year to give her the same benefits as the Speedbird plan. REQUIRED Compare Alex’s Income tax and NIC liabilities for 2020-21 under both alternatives outlined above.
Module leader – Shahrukh Irfan irfans3@lsbu.ac.uk CAPITAL GAINS TAXCGT 1Sloop had the following capital transactions during the year ended 31st March 2021: (i) On 1st July 2020 he sold an antique table at auction for £8,000 before auctioneer’s commission. The auctioneer’s commission was 5% of gross proceeds. He had bought the table for £2,600 three years earlier. (ii)On 3rd August 2020 he sold an investment property for £300,000. He had bought this property in July 1999 for £110,000. This property had never been his main residence. (iii)On the 25th March 2021 he sold a vintage Rolls Royce car for £70,000. This had cost him £5,000 in October 1984 (iv)On the 3rd April 2021 he sold a painting (a forgery) for £100. He had bought the painting for £8000 in 2010. (v)He had losses bought forward of £9,000.REQUIRED: Calculate Sloop’s capital gains tax liability for the year ended 5th April 2021 assuming his other taxable income for income tax purposes for 2020/21 was £22,000. He had made gift aid donations of £8,000 net during the tax year. CGT 2In 2020/21 Bruce has capital gains of £18,000 and capital losses of £6,000. He also has capital losses of £5,000 brought forward at 6th April 2020. What is the CGT situation? CGT 3Nigel sell Georgina a diamond necklace for £10. Nigel bought the necklace 2 days earlier at a cost of £15,000. Nigel is hoping to take Georgina out on a date after she has had the necklace for a couple of days. What is the CGT position? CGT 4Michaela had the following capital transactions during the tax year 2020/21. She had brought forward capital losses of £12,000. She acquired ordinary shares in Tonic Plc as below and sold 40,000 shares on 2 January 2021 for £4.25 each. No of shares Cost £ 20.7.0814,000 41,700 24.8.1316,000 51,300
Module leader – Shahrukh Irfan irfans3@lsbu.ac.uk 31.8.1430,000 94,000 Tonic Plc made a 1 for 3 bonus issue on 1.5.13 and then a 1 for 4 rights issue on 31.3.14 at a rights price of £3.70 per share. Michaela took up the bonus and the rights issue. 2. On 3 July 2020 she sold a Daimler motor car for £20,000. She had bought the car ten years earlier for £16,000. 3. On 4 August 2020 she sold an antique vase for £7,800. She paid commission of 5% on the sale. She had purchased this vase on 5 November 2002 for £2,200. 4. On 30 November 2020 she sold a painting (a forgery) for £400. She had bought the painting for £7,000 in 2006. 5. Michaela has other income of £40,560 in the year. She is entitled to the basic personal allowance. REQUIRED Calculate the capital gains tax payable by Michaela in the tax year 2020/21. CGT 5Scenario 1 Neil purchased a house in Hampstead for £360,000 on 1 March 1978. Neil had the house valued at £730,000 on 31 March 1982. He sold the house and retired to Tenerife on 28 February 2021. The selling price was £1,367,000 but he incurred agents and legal fees of £18,000. Neil occupied the house as his main residence from 1 March 1978 to 31 October 1995. He then went to work in Newcastle (UK) until 30 June 2005. He returned home on 1 July 2005 and lived there again until 1 September 2011. He then went to work in Madrid (Spain) until 30 June 2014. He returned to the UK on 1 July 2014 but did not return to the house and instead took a job in Scotland. He did not return to the house and it was sold on 28 February 2021. The house was never let. Scenario 2 Clarissa bought the following shares in Fashion House PLC: No of shares Cost £ 11 August 20125,000 17,000 12 September 20141,600 6,000 15 October 20203,400 14,100 20 October 20201,200 4,900 22 October 20201,400 5,800 18 November 20204,100 On 15 October 2020 she sold 7,000 shares for £30,500. 16,000 She sold a further 3000 shares for £14,000 on 2 December 2020.
Module leader – Shahrukh Irfan irfans3@lsbu.ac.uk Scenario 3 Allan sold his house (his principal private residence) in Reading in November 2020 making a gain on sale of £216,000. Allan had owned the house for 18 years. It was his principal private residence for the first 9 years of ownership. During his actual residency period, Allan ran a business and claimed 1/8 of the household expenses as business costs against his income for a 2 year period. After 9 years, he let the house out to tenants for the next 3 years whilst he lived with his girlfriend, but it was unoccupied for the last 6 years of ownership. REQUIRED: Calculate the chargeable gain for Capital Gains Tax in each of the three scenarios above. CGT 6Lindsay has had the following capital transactions during the current tax year. 1. Lindsay had made the following purchases of shares in XBZ Plc: No of shares Cost £ 10 July 2012 8,000 15,700 18 November 2014 1,600 3,100 3 July 2016 Rights issue (see below) 12 December 2020 2,600 5,600 Lindsay took up a 1 for 3 rights issue 4 July 2016 at a rights price of £2.20. On 5 December 2020 he sold 5,300 shares for £13,038. 2. On 6 August 2020 he sold a painting at auction for £12,000 before auctioneer’s commission. The auctioneer’s commission was 7% of gross proceeds. He had bought the table for £5,100 four years earlier 3. He sold his home, a detached house in Burton-on-Trent for £390,000 on 30 November 2020. He had bought it on 1 April 1998 for £220,000. He had lived in it from purchase until 31 December 2000 when he moved in to his girlfriend’s house. He decided to move out on 30 October 2006 and he moved back to his own house. He remained in occupation until 31 December 2013 when he got a job elsewhere in the UK (in London), and moved out of the house on 1 January 2014. He returned to Burton and the house on 30 April 2017 but moved out to live in his new girlfriend’s flat on 1 October 2018. He never returned to the house and it was never let it out. One room in the house (1/8th of the total) was used exclusively for Lindsay’s business for a period of 4 years from January 2000 – December 2004. 4. On 2 March 2021 he sold another painting (a forgery) which he foolishly purchased for £12,200 in 2017. He sold it at a car boot sale for £200.
Module leader – Shahrukh Irfan irfans3@lsbu.ac.uk 5. Lindsay had capital losses bought forward from 2019/20 of £4,000. Lindsay earned a salary of £41,000 in 2020/21 and he has no other income. He is entitled to the normal personal allowance. REQUIRED Calculate Lindsay’s capital gains tax liability for 2020/21. CGT 7Priyanka purchased a chargeable asset for £90,000 in 2011. She sold one third of the asset for £70,000 in June 2020 and incurred selling costs of £900. The remaining two third were worth £150,000 at this date. REQUIRED Calculate Priyanka’s chargeable gain. CGT 8Mustafa bought a house in Southwark on 1 July 2009 for £65,000. He occupied the house as his Principal Private Residence until 1 January 2011 when he left to work in Newcastle where he stayed with relatives. He returned to the house in Southwark on 1 December 2014 and stayed until 1 September 2016 when he left to take up a new job in Arabia but he never returned to the house. On 1 April 2021 he sold the house in Southwark for £ 260,000. Friends had stayed in the house while he was away but had paid out no rent. Mustafa had the following transactions in Property Portions PLC ordinary shares. He sold 20,000 shares in Property Portfolios Ltd on 31 December 2020 for £100,000. Purchases Number £ 30 November 2013 20,000 19,000 01 February 2015 5,000 6,000 31 December 2020 3,000 12,000 15 January 2021 5,000 14,000 Mustafa had £20,000 of income taxable to income tax for 2020/21 REQUIRED a) Calculate any gain on the sale of the house in Southwark giving Principal Private Residence Relief as appropriate b) Calculate the total gains arising on the sale of the shares. c) Calculate the capital gain tax payable by Mustafa for 2020/21
